June 1st, 2009
Mortgage Rates on the Rise
Last week saw mortgage rates jump up a half point or more on Tuesday and Wednesday, startling many mortgage professionals and causing borrowers who waited to lock their loans to lose out on their low mortgage rates. When you are financing your home, for either a purchase or a refinance, you will be given the chance to ‘lock your loan’ after a preliminary review of your application. While additional underwriting and paperwork is processed, you can choose to “float” or “lock” your loan.
Floating your loan is betting that rates will get no worse than they are today, and hopefully will go down while your loan is in process. When rates go down, borrowers are very happy that they choose to float. If you choose to lock you loan, you will be securing the rate for your mortgage while the paperwork is completed. You won’t lose out if the rates go up, and if they dip, you’ll be stuck with the higher rate you locked in.
A good mortgage professional will advise you of the current rate you are qualified for and present your options. It is a no-win situation for them to advise borrowers on whether to lock or float. If they tell their customers to float, and rates go up, they will be upset. If they tell their customers to lock, and then rates go down, they will be upset. Most brokers do not like to predict rates for their borrowers; they will give clients their options, and then allow them to make an educated decision for the best course of action.
Of course there are unscrupulous brokers who will claim they locked your own, but in actuality are floating; hoping for better rates so they can make some additional yield spread as commission. If the rates go up, you’ll be in for a surprise when the interest rate is delivers. In some cases, the rate may rise enough that your refinance no longer saves enough money a month to be worthwhile. In order to prevent these types of interest rate surprises, always make sure to get a copy of the lock confirmation from your mortgage professional to ensure you have locked in the rate you expect. Lenders will provide a lock confirmation sheet for your peace of mind.
Overall, it should be interesting to see how the rates move in the next few months. Rates have been so low for so long, it seems like the only way is up. However, home sales are still sluggish, condo sales look like they won’t be getting better any time soon, total employment numbers haven’t improved, and Fannie/Freddie and the mortgage lenders are still tinkering with their risk-based adjustment fees. These factors should keep interest rates low, but 50 year all time low rates may be gone for a long time.
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I think as mortgage rates are raising now it is now a good time to buy a property. It is better to wait for a while.